Drillers spend on costly 'walking' rigs to lure customers

Wed Aug 26, 2015 12:28pm EDT
 
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By Sneha Banerjee and Swetha Gopinath

Aug 26 (Reuters) - North American onshore rig contractors are spending millions of dollars to add costly "walking" rigs to their fleet, a move that may seem counterintuitive at a time when the slump in crude prices shows no signs of abating.

Such rigs "walk" from wellbore to wellbore, unlike a regular rig that has to be taken apart and reassembled for each move, and save shale producers time and money - as much as 30 percent of the cost to drill a well.

Even though the returns on these investments will not be immediate, rig contractors such as Patterson-UTI Energy Inc and Pioneer Energy Services are pandering to the demand for these rigs.

They are banking not only on demand increasing for walking rigs, but also on rates picking up, once oil prices recover.

Demand for rigs have taken a walloping, as oil producers have slammed the brakes on drilling new wells to cope with a 28 percent decline in U.S. crude prices this year.

"As activity starts picking up again, the majority of requests from operators, I think, will be for pad-oriented rigs," said Pioneer Energy CEO Stacy Locke, referring to the popular practice of drilling several wells in one location.

This promise of higher demand and better rates has led rig contractors to either build new walking rigs or spend $1 million to $2 million to attach giant hydraulic walking systems on their regular rigs.

It costs $20 million to $25 million to build a new walking rig, according to Evercore ISI analyst James West. A regular rig used to cost $10 million to $15 million a decade ago and no one has built one recently, he said.   Continued...